IRS and Taxes: 1 in 4 Americans say lying is OK, survey finds

Maybe you binge watch “Mad Men” on your best friend’s Netflix account or fib about your child’s age to get a cheaper price at the buffet. To some, this dishonesty amounts to a relatively harmless gaming of the system.

But what do Americans think about lying when more money is at stake? A new survey commissioned by NerdWallet and conducted by Harris Poll among 2,115 Americans ages 18 and older finds that a surprising number of adults would even call a lie that could result in federal prosecution acceptable.

The survey asked Americans which of the following potentially money-saving lies are “acceptable” and which are “unacceptable”:

  • For adults to lie about their own or their child’s age to receive a restaurant or other merchant discount.
  • To make use of someone else’s account (such as Netflix, Pandora, Amazon Prime) to avoid subscription fees.
  • To lie about tobacco or marijuana smoking habits to receive lower life insurance rates.
  • To lie about income on a loan or credit card application.
  • To lie about the number of miles driven per year to receive lower auto insurance rates.
  • To not report under-the-table income to pay less in taxes to the IRS.

Key takeaways:

What’s OK. A third (33%) of Americans say using someone else’s account information for online movies, music or articles to avoid paying subscription costs is acceptable.

What’s not OK? Lying and life insurance. Just 11% of Americans say lying about tobacco smoking habits for lower life insurance rates is acceptable, making it the least-popular lie among those tested. Men (14%) are twice as likely as women (7%) to say this lie is acceptable.

Gender makes a difference. Men are more likely than women to say most of the financial lies in the survey are acceptable — sometimes at twice the rate of women.

About a quarter consider lying to the IRS about under-the-table income acceptable. The lie with potentially the most serious consequences in the survey, not reporting under-the-table income to the IRS to pay less in taxes, is deemed acceptable by 24% of Americans. This second-most-popular lie in the survey could result in prosecution.

Most popular lies

Willfully failing to report income to the IRS is a felony that can carry a five-year prison sentence. Although the consequences are severe for some financial lies, whether we tell the truth isn’t always as simple as weighing the risks and rewards.

“I don’t think that, in general, people really think very much about the size of the punishment,” says Dan Ariely, behavioral economist and author of “The (Honest) Truth About Dishonesty.” “The level of dishonesty we’re willing to commit is influenced by how much we can rationalize at that very moment.”

IRS and failing to report income

For example, people may minimize the harm in something like lying about a child’s age when ordering from the kids menu by reasoning that their child has a small appetite. They may rationalize concealing income because they distrust the government or believe it’s wasting their tax dollars.

The IRS estimates unreported and underreported income account for hundreds of billions of dollars in uncollected taxes each year.

“The IRS is getting wise on how to catch people underreporting or not reporting taxable income,” says Crystal Stranger, a tax expert licensed to represent taxpayers in IRS proceedings.

Stranger says the IRS uses “lifestyle audits” to single out people who may be living affluent lifestyles but reporting modest incomes, or to target people in jobs “known to have questionable reporting practices, such as taxi drivers, bartenders and construction workers.”

‘Significant’ losses

The survey didn’t inquire about the degree to which people would fail to report income. Omitting the cash you earn from occasionally mowing your neighbors’ lawns may be acceptable to many Americans, but hiding large amounts of income may cross the line. The law recognizes this as well.

“Criminal charges are generally recommended only in those cases where the government can prove intent and the tax loss is fairly significant, upwards of $10,000,” says Al Drucker, a retired IRS special agent. “In most instances, the matters are handled civilly with stiff financial penalties and applicable interest.”

Elizabeth Renter is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @ElizabethRenter.

The information in this article originally appeared on NerdWallet. You can view the full study here.